Transcript of "Emerging dimensions of insurance sector and analytics"
Indian Scenario Dr. Prashant MehtaAssistant Professor, National Law University, Jodhpur
Insurance is concerned with protection of economic value of assets. Tangible assets are human beings, house, furniture, motor cycle etc. Intangible assets are liabilities. 2
It started from Lloyd’s coffee house London. First policy issued in England in 1583 . Insurance in India has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Calcutta to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer . 3
1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business. 1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses. 1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the Government of India. 1850: The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in Kolkata by the British. 5
1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business. 1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns. 1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee was set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973. 107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company. 6
Aviva Life Insurance Bajaj Allianz Life Insurance Birla Sun-Life Insurance HDFC Standard Life Insurance ING Vysya Life Insurance Life Insurance Corporation Max New York Life Insurance MetLife Insurance Om Kotak Mahindra Life Insurance Reliance Life Insurance Sahara India Life Insurance SBI Life Insurance TATA AIG Life Insurance 7
Agriculture Insurance Amsure Insurance ANZ Insurance Bajaj Allianz General Insurance Cholamandalam General Insurance Employee State Insurance Export Credit Guarantee Corporation ICICI Lombard General Insurance IFFCO-Tokio General Insurance National Insurance Oriental Insurance Peerless Smart Financial Royal Sundaram Alliance TATA AIG General Insurance 8
Providing Protection – The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others. Collective Risk Bearing – Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid. Evaluating Risk – Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well. Provide Certainty – Insurance is a device, which assists in changing uncertainty to certainty. 11
Preventing Losses – Insurance warns individuals and businessmen to embrace appropriate device to prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc. Covering larger risks with Small Capital – Insurance assuages the businessmen from security investments. This is done by paying small amount of premium against larger risks and dubiety. Helps in the Development of Larger Industries – Insurance provides an opportunity to develop to those larger industries which have more risks in their setting up. 12
Is a savings and investment tool – Insurance is the best savings and investment option, restricting unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option. Medium of earning foreign exchange – Being an international business, any country can earn foreign exchange by way of issue of marine insurance policies and a different other ways. Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free with the help of different types of policies under marine insurance cover. Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster. There are different types of insurance policies under the sun cover almost anything that one might think of. There are loads of companies who are providing such customized insurance policies. 13
The US$ 41-billion Indian life insurance industry is considered the fifth largest life insurance market, and growing at a rapid pace of 32-34% annually, according to the Life Insurance Council. Since the opening up of the insurance sector in India, the industry has received FDI to the tune of US$ 525.6 million. The government is likely to reintroduce the Insurance Bill which proposes to increase the FDI cap in private sector insurance companies from 26% to 49%. 14
The total number of life insurers registered with the IRDA has gone up to 23. The Life Insurance Corporation (LIC) posted a 50% growth in new premium collection in the first nine months of the 2010 fiscal, increasing its market share to 65% from 56% a year ago. LIC’s new premium collection touched US$ 9.58 billion in the April-December 2009 period while the combined business of the 22 private insurers grew to US$ 5.07 billion from the previous year, as per data collated by IRDA. Overall the industry grew at 29% in the April-December period of the fiscal year 2010. 15
The total number of general insurers registered with IRDA has gone up to 22, with the registration of SBI General Insurance Company Limited. Overall, the non-life insurance sector grew 9.95% in April-December 2009, compared to the corresponding period last year According to IRDA data, out of the US$ 5.46 billion premium underwritten by the industry during the April-December 2009 period, US$ 3.24 billion came from the four public sector companies as compared to US$ 2.91 billion during the same period in 2008. The Gross Premium underwritten by public sector non-life insurers for the April- December 2009 period posted year-on-year growth of 11.37% as compared to the year- on-year growth of 7.93% posted by private sector non-life insurers 16
Moreover, in the 2010-11 budget, Finance Minister, has decided to roll back the government’s decision to tax the unrealised gains of non-life insurance companies. “The appreciation in the value of investments, being in the nature of unrealized gain is not taken into account for determining profit or loss of non-life insurance business as per the IRDA regulations. It is, therefore, proposed that the unrealized gains due to appreciation in the value of investments will not be included in the total income,” according to the budget documents. According to data from the IRDA (Summary Reports of Motor Data of Public and Private Sector Insurers - 2008-09), in 2008-09, nearly 30 million vehicles were registered and a total premium worth US$ 2.03 billion was collected. 20
Insurance companies are also witnessing increasing demand for project insurance in the last few months. Corporates are beginning to demand project insurance across sectors such as power generation with the cover beginning right from the start of the project till it is declared ready for commercial use. Some of the big projects also take cover for financial loss arising out of delay in completion. Industry players estimate that premiums collected from project insurance will be around US$ 216.2 million for the industry as a whole and is expected to increase significantly. 21
The health insurance market stood at around US$ 1.5 billion in 2008-09 and is expected to grow to US$ 9 billion by 2016-17. While health insurance policies are mostly provided by general insurance companies, life insurers contribute about 5% to the overall health insurance business. Apollo Munich is a joint venture between Asia’s largest integrated healthcare provider, The Apollo Hospitals Group, and Germany-based Munich Res segment, Munich Health. Max India is planning to invest US$ 43.25 million in its health insurance joint venture (Max Bupa) and will launch a product over the January–June 2010 period. Star Health and Allied Insurance expects to invest US$ 38.9 million during the current financial year to grow its health insurance business, taking the total invested capital to US$ 67 million. 22
Private insurers have adopted bancassurance in a much bigger way than the state- owned Life Insurance Corporation (LIC) in the recent years. Bancassurance is distribution of insurance products through a banks network. In 2008-09, private insurers forked out US$ 44.4 million as commission for banassurance, while the payout by LIC for this distribution model was US$ 25,948. 24
Reinsurance is a contract between the insurance company (insurer) and a third party (re-insurer), wherein the latter will protect the former by paying losses sustained by it under the original contract of insurance. Re-insurers from London, as well as other parts of Europe, see significant potential in the re-insurance market in India. Top four global re-insurers, Lloyds, Swiss Re, Munich Re and Berkshire Hathaway are amongst those eyeing India. 25
The FDI limit in the insurance space for foreign players is capped at 26% permissible under the automatic route subject to a licence from the official regulator, IRDA—but the government is planning to raise it to 49%. IRDA has stipulated that the mandatory ceding by every general insurer in the country to the national reinsurer – General Insurance Corporation (GIC), would continue to remain at 10% as under current regulations. IRDA has also allowed insurance companies to offer Health plus Life Combi Product, a policy that would provide life cover along with health insurance to subscribers. Pension Fund Regulatory and Development Authority (PFRDA) would launch a low-cost pension scheme on April 1, 2010, to provide social security cover to economically weaker sections like rickshaw pullers, barbers and daily-wage labourers 26
Micro insurance is defined as insurance provided for low-income people by a variety of insurers, run in accordance with generally accepted insurance principles, and funded by premiums Comprises of risk-pooling products : Appropriate for the low-income market cost, terms, coverage, and delivery mechanisms Micro Finance helps people improve livelihoods and Micro Insurance helps them to protect the gains in the event of any unfortunate events. Potential market for insurance in developing economies estimated to be between 1.5 and 3 billion policies. Significant demand for a range of insurance products – health, life, agricultural and property insurance, catastrophe cover. 27
Saturation of insurance markets in many developed economies has made the Indian market more attractive for international insurance players, according to Booming Insurance Market in India (2008-2011)”. Further, according to the report, Total life insurance premium in India is projected to grow US$ 266 billion by 2010-11 Total non-life insurance premium is expected to increase at a compound annual growth rate (CAGR) of 25% for the period spanning from 2008-09 to 2010-11 The home insurance segment is set to achieve a 100% growth as financial institutions have made home insurance obligatory for housing loan approvals In the next three years, health insurance is poised to become the second largest business for non-life insurers after motor insurance 28
IRDA was set up by the parliament in 1999. The section 4 of IRDA Act 1999,Insurance Regulatory and Development Authority specify the composition ofAuthority.The Authority is a ten-member team consisting ofa. Chairman;b. Five whole-time members;c. Four part-time members,(All these positions are appointed by the Government of India.)IRDA - Duties,Powers and Functions:Section 14 of IRDA Act, 1999 lays down the duties, powers and functions ofIRDA..(1) Subject to the provisions of this Act and any other law for the timebeing in force, the Authority shall have the duty to regulate, promote andensure orderly growth of the insurance business and re-insurance business. 33
The Insurance Policy India is regulated by certain acts like the Insurance Act(1938), the Life Insurance Corporation Act(1956), General Insurance Business (Nationalization) Act(1972), Insurance Regulatory and Development Authority (IRDA) Act(1999). The insurance policy determines the covers against risks, sometime opens investment options with insurance companies setting high returns and also informs about the tax benefits like the LIC in India. There are two types of insurance covers: Life insurance – this sector deals with the risks and the accidents affecting the life of the customer. Alongside, this insurance policy also offers tax planning and investment returns. There are various types of life Insurance Policy India: a. Endowment Policy b. Whole Life Policy c. Term Life Policy d. Money-back Policy e. Joint Life Policy f. Group Insurance Policy g. Loan Cover Term Assurance Policy h. Pension Plan or Annuities i. Unit Linked Insurance Plan General Insurance – this sector covers almost everything related to property, vehicle, cash, household goods, health and also ones liability towards others. The major segments covered under general Insurance Policy India are: a. Home Insurance b. Health Insurance c. Motor Insurance d. Travel Insurance 34
The Insurance Regulatory Development Act, 1999 (IRDA Act) allowed the entry of private companies in the insurance sector, which was so far the sole prerogative of the public sector insurance companies. The act was passed to protect the concerns of holders of insurance policy and also to govern and check the growth of the insurance sector. This new act allowed the private insurance companies to function in India under the following circumstances : The company should be established and registered under the 1956 company Act. The company should only the serve the purpose of life or general insurance or reinsurance business. The minimum paid up equity capital for serving the purpose of reinsurance business has been decreed at Rs 200 crores. The minimum paid up equity capital for serving the purpose of reinsurance business has been decreed at Rs 100 crores. The average holdings of equity shares by a foreign company or its subsidiaries or nominees should not go above 26% paid up equity capital of the Indian Insurance company. 35
As per the report of Booming Insurance Market in India (2008-2011), concentration of insurance markets in many developed countries of the world has made the Indian insurance market more magnetic in terms of international insurance players. Furthermore, the report says Home insurance sector is likely to achieve a 100% growth since home insurance are made compulsory for housing loan approvals by the financial institutions. In the coming three years Health insurance sector is all set to become the second largest business after motor insurance. During the period of 2008-09 to 2010-11 the non life insurance premium is likely to have a growth of 25%. 36
The Indian insurance industry churns out large volume of jobs every year. However, some of the specific areas of expertise in this industry include: Agent and Broker: Insurance agents/ brokers are the people who give product advice to the clients in order to sell companys product. Customer Service Agent: the person in-charge of this post needs to interact with the customer on daily basis in the agency to update policy as well as coverage details. Claims Adjuster: the office holder needs to ascertain the range of damage in case of accidents and see if the insurance policy can cover it. He/ she make way for settlement between the insurance company and its customers. Actuary: this is one of the very crucial insurance jobs. The person in-charge of this office needs to analyze the risks involved in creating the insurance policies in the areas of business, property or life & death of the person. To find a job in this area, the aspirant needs to be Mathematics, Econometrics, Statistics or Computer Science graduate. MBAs in finance can also apply for the post. Risk Manager: the person needs to spot the risk and suggest the ways to tackle such risks. Service Representatives: this profile demands an individual to act as a medium between the insurance companies and agents. Loss Control Specialist: the office holder needs to look into safety measures so that accidents at the workplace which can lead to financial losses can be avoided. Underwriter: the office holder needs to determine the applicants chances of risks and whether the policy chosen by him/ her meets the insurance standard. 37
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IRDA Annual Report 2006 -07 http://irdaindia.org Tariff Advisory Committee http://tacindia.org IRDA Hand Book http://irdaindia.org www.policybazaar.com/life-insurance www.easyinsuranceindia.com www.india.gov.in/citizen/insurance_companies.php
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